THE AUTUMN BUDGET 2024

After months of speculation, the Labour Government has provided its first financial statement (Budget) in 14 years. The Chancellor announced a suite of changes in an attempt to raise enough revenue to cover additional spending commitments and the shortfall they allegedly inherited from the previous administration.  In their general election manifesto, Labour pledged not to raise a number of taxes that would impact ‘working people’.  This led to much conjecture and seemingly endless newspaper articles about how they would actually raise the necessary monies, without impacting the majority of the population.

Headline Changes

Income Tax

Given the pledge not to raise taxes for working people, no immediate changes have been made to the headline rates of income tax and (personal) national insurance. Labour have committed to maintaining the freeze on income tax bands until the end of 2027/28. Originally implemented by the Conservative Government in the March 2021 Budget, fiscal drag will see tax revenues increase as taxable income increases.

Estimated to raise £19 billion in 2025/26, national insurance for employers will increase from 13.8% to 15.0%, an increase of 1.2%. The threshold at which this has also been paid will also reduce from £9,100 to £5,000 per employee. This is by far the largest increase to taxation from the range of changes announced.

Capital Gains Tax

Perhaps the most speculated change in the Budget was a change to the headline rates of capital gains tax.

From 30 October 2024, the mains rates have increased from 10% to 18% for basic rate taxpayers and 20% to 24% for higher or additional rate taxpayers. This is relatively modest compared to the speculated increase of up to 39%.

The 2024/25 tax year will in effect work on a split year taxation basis with sales completed prior to 30 October based on the previous tax rates and realised gains in excess of the annual allowance completed after, based on the new rates.

Realised gains above the capital gains annual allowance will therefore be taxed as follows:-

Based on the new rates, a £10,000 chargeable gain in excess of the annual allowance would represent an additional tax burden of £800 for a basic rate taxpayer and £400 for a higher or additional rate taxpayer.

For property (excluding main residence) the rates remain unchanged at 18% and 24% respectively. The annual capital gains tax allowance of £3,000 remains the same, along with the capital gains tax uplift on death.

With five months remaining in the tax year, there is plenty of time to assess the capital gains position and determine whether any action is required.

Business Asset Disposal Relief

 A lifetime limit of £1,000,000 will remain for those who sell their business and qualify for business asset disposal relief (previously Entrepreneurs Relief). The basic rate applicable to this allowance will be gradually increased but with the 10% rate remaining for 2024/25 tax year. Moving into 2025/26, the rate will increase to 14% and will match the main lower rate of 18% in 2026/27.  Given the planned increases to the tax rate, the relief enjoyed for many years by business owners on a sale, is effectively being phased out.

Any realised gains above £1,000,000 will be taxed at 24%, with effect from 30 October 2024.

Pension Legislation

Upfront tax relief on pension contributions remains the same, with personal contributions grossed up by the provider at 20% and further tax relief of 20% and 25% available for higher and additional rate taxpayers respectively.

The total tax-free amount taken from a pension remains limited to the Lump Sum Allowance (LSA) of £268,275 for those without any form of transitional protection. Speculation, pre Budget indicated a possible reduction to £100,000 but there was nothing in the speech indicating that this is being considered.

Most notable is the change to the tax treatment of unspent pensions on death. From 6 April 2027, unspent pensions will be included in the estate for inheritance tax purposes. The proposal is currently in a consultation period with further detailed guidance not expected until Q1/Q2 next year. The ‘direction of travel’ on this point though is clear in that pension funds on death will no longer be able to be seen as succession planning vehicles in the same way that has been the case for many since the Osborn Budget in 2015.

Given the delayed implementation and uncertainty around how this will affect a variety of pension death benefits, which is unlikely to be made fully clear until after the consultation period, there will be no immediate action required, in the majority of cases.

Inheritance Tax Legislation

Business Relief qualifying investments currently provide exemption from inheritance tax and can help investors pass on more of their assets (tax free) upon death. Until 6 April 2026, the amount that can qualify for this relief remains unlimited.

From 6 April 2026, a limit of £1,000,000 will apply, with the balance above this being taxable at 50% of the inheritance tax rate i.e. up to 20% based on current rates. In a similar fashion to the speculation around capital gain tax, the increased rate is lower than the anticipated total abolishment of business relief.

Investments into the AIM market will not be eligible for the £1,000,000 limit and the total value will be liable to inheritance tax of up to 20% on death, from April 2026.

Agricultural Relief follows the same fate as Business Relief and will have the same £1,000,000 limit and 50% inheritance tax rate above this value. The £1,000,000 limit will apply across Agricultural and Business relief for those who qualify for both.

Stamp Duty

 The additional rate of stamp duty applicable to second properties has increased from 3% to 5% from 31 October 2024. Not announced during the Budget speech, but detailed in the paperwork following, was the reduction to the stamp duty threshold.

From 1 April 2025, the lower limit at which stamp duty applies will reduced from £250,000 to £125,000. For first time buyers the property value at which stamp duty applies will reduce from £425,000 to £300,000.

VAT On Private Schools

Announced earlier in the tax year, private schools will be subject to VAT on fees from the start of 2025.

What Action is Required?

With many of the announced changes not due to take effect until sometime in the future and others having already been implemented, there is probably time now for a period of reflection and consideration as to what the changes will actually mean to individual financial plans.   New legislation can take a number of months to be drafted and policy adjustments may be applied prior to Royal Assent being obtained.  For these reasons we would generally caution against making immediate changes to established savings and succession planning strategies.

Over the next few months, further information and guidance will be released that should help to clarify the new rules and identify any potential financial planning opportunities.  We will of course be available to discuss individual circumstances.